A Boglehead Guide to Buying Individual Stocks

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
backpacker
Posts: 1620
Joined: Mon Sep 22, 2014 2:17 pm

A Boglehead Guide to Buying Individual Stocks

Post by backpacker » Wed May 03, 2017 2:05 pm

I'm convinced that beating the market is incredibly hard, that most investors can't do it, and that I am one of those investors. But suppose that an otherwise financially secure Boglehead were to set out to beat the market by buying individual stocks with a small portion of his portfolio (say 10%). The point would be learning how to value companies rather than actually making money. What books or other resources would be most useful for someone with a serious interest in security analysis?

I've been thinking that working on basic accounting might be a good place to start, maybe with a book like Accounting for Value. Damodaran's book Investment Valuation also looks good.

livesoft
Posts: 62776
Joined: Thu Mar 01, 2007 8:00 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by livesoft » Wed May 03, 2017 2:09 pm

Security Analysis by Benjamin Graham and David Dodd. Free online.
Wiki This signature message sponsored by sscritic: Learn to fish.

CppCoder
Posts: 841
Joined: Sat Jan 23, 2016 9:16 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by CppCoder » Wed May 03, 2017 2:17 pm

I learned a lot from Why Stocks Go Up and Down by Gregory and Pike.

alex_686
Posts: 3935
Joined: Mon Feb 09, 2015 2:39 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by alex_686 » Wed May 03, 2017 2:17 pm

The classic work is The Intelligent Investor by Benjamin Graham

Another, more daunting option, would be to read the CFA curriculum. It is very comprehensive. You can find used copies on EBay. A good chunk is about evaluation of individual stocks. More importantly it goes into portfolio theory. The idea of picking stocks to beat the market not that good of an idea. A better idea is to pick stocks that will enhance the ability of your portfolio as a whole to meet your goals.

I will also say that portfolio theory probably will have more impact on your portfolio performance. i.e. Stocks v Bonds, Growth v Value, Overweight REITs? etc. Individual stocks would have less of an impact.
Last edited by alex_686 on Wed May 03, 2017 2:25 pm, edited 1 time in total.

itstoomuch
Posts: 5343
Joined: Mon Dec 15, 2014 12:17 pm
Location: midValley OR

Re: A Boglehead Guide to Buying Individual Stocks

Post by itstoomuch » Wed May 03, 2017 2:24 pm

The tools that I use are: Darts, products/services, its management, and their market focus. Otherwise amblivalent. :oops:
It's Discretionary funds and always has been.
YMMV
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

User avatar
patrick013
Posts: 2407
Joined: Mon Jul 13, 2015 7:49 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by patrick013 » Wed May 03, 2017 3:17 pm

backpacker wrote:What books or other resources would be most useful for someone with a serious interest in security analysis?
Try something by Peter Lynch. Not the super-investor he used to
be but a good role model still. Just don't put too much money in
any one stock, spread it around evenly to a dozen stocks or more.
Look for a common name company trading around 15 PE, not necessarily
a value stock, but look for some reason the PE will go to 20 especially
if it has in the past. New customer, new acquisition, product improvement,
anything that will convince you earnings, growth, and PE should rise in
the coming years. Or just buy a stock index and let index replacement
be your advisor keeping the best stocks in the portfolio.
age in bonds, buy-and-hold, 10 year business cycle

User avatar
bengal22
Posts: 1438
Joined: Sat Dec 03, 2011 6:20 pm
Location: Ohio

Re: A Boglehead Guide to Buying Individual Stocks

Post by bengal22 » Wed May 03, 2017 3:47 pm

Buy randomly 30 stocks, equal portions, from the S&P 500. You now have your own index fund and you will come close to the S&P 500 index and beat over half of the mutual fund managers. Maybe.
"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley

iamlucky13
Posts: 1032
Joined: Sat Mar 04, 2017 5:28 pm
Location: Western Washington

Re: A Boglehead Guide to Buying Individual Stocks

Post by iamlucky13 » Wed May 03, 2017 4:46 pm

I'm not sure I'd call it a Boglehead guide. I think of buying individual stocks as distinctly non-Boglehead.

That doesn't mean illegitimate. You can accept Bogle's philosophy without being held to any kind of loyalty pledge to enact it 100%. Be reasonable, just like you'd be reasonable about buying a house - you can retire a lot earlier or build up more wealth if you buy the cheapest habitable home you can find, but the far, far more typical advice is to buy a house you can comfortably afford, even if life throws some challenges your way.

The key Bogleheads principles I would apply to non-Boglehead investing are:

1) Have a clearly defined plan - how much of your portfolio can be individual stocks? What sort of diligence will you do before buying and selling? How will you avoid acting on impulse?

2) Keep your risks at an acceptable level - Even the S&P 500 has a proven ability to lose over 50% for a limited duration. We have strategies for mitigating that: increasing bond allocations near retirement, delaying retirement, increasing savings rate, having a plan to reduce withdrawals if needed.

Individual stocks have a proven ability to lose 100%. Forever. If that happens, are you in a position to absorb the loss, such as with the above strategies? This consideration actually informs the planning consideration. Should you reduce your individual stock allocation? Should you limit your holdings in any given sector to a certain percentage of your individual stocks?

3) Diversify - I don't expect this needs much explanation. You'll never have the level of diversification of VTSAX, nor can you while still complying with the next principle, but a single stock or even single sector is obviously not diversified.

4) Keep costs low - Use a reasonably priced brokerage service, don't buy and trade frequently, avoid short term capital gains when possible, keep clear records so your accountant doesn't have to bill for unnecessary time sorting out your tax return.

User avatar
oldcomputerguy
Posts: 3444
Joined: Sun Nov 22, 2015 6:50 am
Location: In the middle of five acres of woods

Re: A Boglehead Guide to Buying Individual Stocks

Post by oldcomputerguy » Wed May 03, 2017 5:05 pm

backpacker wrote:I'm convinced that beating the market is incredibly hard, that most investors can't do it, and that I am one of those investors. But suppose that an otherwise financially secure Boglehead were to set out to beat the market by buying individual stocks with a small portion of his portfolio (say 10%). The point would be learning how to value companies rather than actually making money. What books or other resources would be most useful for someone with a serious interest in security analysis?
Take a look at Matt Krantz's "Fundamental Analysis for Dummies". Decent introduction to the task of trying to pick stocks looking at their balance sheets and financial reports.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

User avatar
Toons
Posts: 13016
Joined: Fri Nov 21, 2008 10:20 am
Location: Hills of Tennessee

Re: A Boglehead Guide to Buying Individual Stocks

Post by Toons » Wed May 03, 2017 5:06 pm

What is the point of "Beating the Market"
Is it necessary? :mrgreen:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

User avatar
backpacker
Posts: 1620
Joined: Mon Sep 22, 2014 2:17 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by backpacker » Wed May 03, 2017 5:47 pm

Toons wrote:What is the point of "Beating the Market"
Is it necessary? :mrgreen:
Of course not! Neither is learning how to paint or running a marathon. The point would be learning how to value companies. Having some (but not too much) money at stake would make the project more interesting I think

User avatar
backpacker
Posts: 1620
Joined: Mon Sep 22, 2014 2:17 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by backpacker » Wed May 03, 2017 5:51 pm

iamlucky13 wrote:I'm not sure I'd call it a Boglehead guide. I think of buying individual stocks as distinctly non-Boglehead.

That doesn't mean illegitimate. You can accept Bogle's philosophy without being held to any kind of loyalty pledge to enact it 100%. Be reasonable, just like you'd be reasonable about buying a house - you can retire a lot earlier or build up more wealth if you buy the cheapest habitable home you can find, but the far, far more typical advice is to buy a house you can comfortably afford, even if life throws some challenges your way.

The key Bogleheads principles I would apply to non-Boglehead investing are:

1) Have a clearly defined plan - how much of your portfolio can be individual stocks? What sort of diligence will you do before buying and selling? How will you avoid acting on impulse?

2) Keep your risks at an acceptable level - Even the S&P 500 has a proven ability to lose over 50% for a limited duration. We have strategies for mitigating that: increasing bond allocations near retirement, delaying retirement, increasing savings rate, having a plan to reduce withdrawals if needed.

Individual stocks have a proven ability to lose 100%. Forever. If that happens, are you in a position to absorb the loss, such as with the above strategies? This consideration actually informs the planning consideration. Should you reduce your individual stock allocation? Should you limit your holdings in any given sector to a certain percentage of your individual stocks?

3) Diversify - I don't expect this needs much explanation. You'll never have the level of diversification of VTSAX, nor can you while still complying with the next principle, but a single stock or even single sector is obviously not diversified.

4) Keep costs low - Use a reasonably priced brokerage service, don't buy and trade frequently, avoid short term capital gains when possible, keep clear records so your accountant doesn't have to bill for unnecessary time sorting out your tax return.
These are all great thoughts. As I was imaging it, buying individual stocks as a Boglehead would mean buying maybe one or two companies a year with the goal of holding them forever. Warren Buffett says he has only one or two good ideas a year and I'm not going to have more than that. Diversification is not too much of an issue if 90% of your portfolio in indexed.

likegarden
Posts: 2698
Joined: Mon Feb 26, 2007 5:33 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by likegarden » Wed May 03, 2017 6:25 pm

I remember it was full of work evaluating individual companies (stocks) in an accounting course I took towards my MBA. Nowadays I am a Boglehead and love the approach of owning the S&P 500, that is most of all US companies.

TIAX
Posts: 1160
Joined: Sat Jan 11, 2014 12:19 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by TIAX » Wed May 03, 2017 6:29 pm

Everything I know about trading I learned from livesoft's posts.

User avatar
BolderBoy
Posts: 4142
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: A Boglehead Guide to Buying Individual Stocks

Post by BolderBoy » Wed May 03, 2017 6:39 pm

backpacker wrote:I'm convinced that beating the market is incredibly hard, that most investors can't do it, and that I am one of those investors. But suppose that an otherwise financially secure Boglehead were to set out to beat the market by buying individual stocks with a small portion of his portfolio (say 10%). The point would be learning how to value companies rather than actually making money. What books or other resources would be most useful for someone with a serious interest in security analysis?
My father had a lifelong subscription to Value Line http://www.valueline.com/, started an investment club and taught dozens of folks how to evaluate companies and buy stocks.

Warning: his investment club's annualized returns over 30 years came to about 2.9% while the S&P500 Index returned about 9% annualized over the same period.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

duckcalldan
Posts: 145
Joined: Tue Feb 12, 2008 9:55 pm
Location: Colonial Virginia

Re: A Boglehead Guide to Buying Individual Stocks

Post by duckcalldan » Wed May 03, 2017 6:51 pm

I used to hold about 80% individual stocks as a youngster. Now that I'm a grizzled Boglehead, I'm down to about 12%. Still in the six figures, but these stocks are some companies that I'd be happy owning forever a la Buffett. For example, I bought Visa at their IPO. It's about the perfect company in a world that is rapidly becoming cashless but still has plenty of room for growth worldwide. I have been generously rewarded, and I have no plans to sell my V shares.

Likewise, I own Berkshire Hathaway which is practically a mini-mutual fund. And a small handful of others that have a low cost basis that I feel strongly about their prospects. But these shares will be sold over the next years to bridge the gap from early retirement to SS.

Visa is my largest individual stock holding and it's about 3% of my total assets. Whereas Vanguard Total Stock is over 25% of my holdings. I sleep well at night.
Last edited by duckcalldan on Wed May 03, 2017 8:07 pm, edited 1 time in total.

User avatar
backpacker
Posts: 1620
Joined: Mon Sep 22, 2014 2:17 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by backpacker » Wed May 03, 2017 7:07 pm

likegarden wrote:I remember it was full of work evaluating individual companies (stocks) in an accounting course I took towards my MBA. Nowadays I am a Boglehead and love the approach of owning the S&P 500, that is most of all US companies.
This is basically what I was imagining: Learning on my own what I would learn about valuing companies if I were to go through an MBA program. That seems like a good place to start anyway.

livesoft
Posts: 62776
Joined: Thu Mar 01, 2007 8:00 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by livesoft » Wed May 03, 2017 7:10 pm

TIAX wrote:Everything I know about trading I learned from livesoft's posts.
:shock:
Wiki This signature message sponsored by sscritic: Learn to fish.

User avatar
DaftInvestor
Posts: 4064
Joined: Wed Feb 19, 2014 10:11 am

Re: A Boglehead Guide to Buying Individual Stocks

Post by DaftInvestor » Wed May 03, 2017 7:10 pm

I believe the title of this thread is an oxymoron.

User avatar
nedsaid
Posts: 10500
Joined: Fri Nov 23, 2012 12:33 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by nedsaid » Wed May 03, 2017 7:18 pm

This reminds me of the famous Wall Street Journal column where darts thrown at the New York Times stock page was pitted against stock market professionals. Hint: The darts won most of the time. Only problem with that is that I am not sure anyone prints a stock page anymore.
A fool and his money are good for business.

Grt2bOutdoors
Posts: 19310
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: A Boglehead Guide to Buying Individual Stocks

Post by Grt2bOutdoors » Wed May 03, 2017 7:34 pm

Bogleheads Guide to Owning, Period! Buy low, sell high. In other words, the contrarian who goes against the market trend will usually reap outsized returns with lower risk. Stick with value! Buy and hold, when reversion to mean appears you will be rewarded. The key is patience and persistence to stick with your investment policy statement. You do have one right?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

stlutz
Posts: 4784
Joined: Fri Jan 02, 2009 1:08 am

Re: A Boglehead Guide to Buying Individual Stocks

Post by stlutz » Wed May 03, 2017 7:51 pm

I would start out by approaching it at a portfolio management level first and a stock selection level second.

That is, if your biggest holding is VTI, there is really no point in buying any of the largest 100 or so companies--you already have plenty of those. Secondly, I would look at companies that may not correlate that well with the overall market.

In short, leave the standard, boring blue chips behind and look for something that complements what you already have in your portfolio. Get a list of those stocks and then select among them based on a variety of criteria that tend to get talked up--buy some based on valuation, others because of their stability/quality, and others because of momentum.

Let us know what you bought and then report back after a year. :sharebeer

honduranhurricane
Posts: 96
Joined: Tue Oct 18, 2016 10:18 pm
Location: boston, ma

Re: A Boglehead Guide to Buying Individual Stocks

Post by honduranhurricane » Wed May 03, 2017 8:25 pm

On top of some of the other books etc...finding a pdf of 'Margin of Safety' by Seth Klarman is worth the effort. Forget buying on amazon, used costs north of $1,000...

carofe
Posts: 350
Joined: Thu Mar 20, 2014 7:21 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by carofe » Wed May 03, 2017 8:42 pm

honduranhurricane wrote:On top of some of the other books etc...finding a pdf of 'Margin of Safety' by Seth Klarman is worth the effort. Forget buying on amazon, used costs north of $1,000...
I have to say, I'm very impressed by the price of that book. I have never seen a book costing that much
US Total Stock Market + Intermediate Term Bond. That's it.

User avatar
Toons
Posts: 13016
Joined: Fri Nov 21, 2008 10:20 am
Location: Hills of Tennessee

Re: A Boglehead Guide to Buying Individual Stocks

Post by Toons » Wed May 03, 2017 8:50 pm

backpacker wrote:
Toons wrote:What is the point of "Beating the Market"
Is it necessary? :mrgreen:
Of course not! Neither is learning how to paint or running a marathon. The point would be learning how to value companies. Having some (but not too much) money at stake would make the project more interesting I think
You are correct,,,,,
I would buy McDonald's ,which I did
Reinvest the dividends,
Check back in 10 years. :mrgreen: :mrgreen:

http://performance.morningstar.com/stoc ... ture=en-US
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

User avatar
oldzey
Posts: 1074
Joined: Sun Apr 13, 2014 8:38 pm
Location: Land of Lincoln

Re: A Boglehead Guide to Buying Individual Stocks

Post by oldzey » Wed May 03, 2017 9:20 pm

A Boglehead Guide to Buying Individual Stocks:

Don't!
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

User avatar
warowits
Posts: 356
Joined: Tue Sep 29, 2015 2:38 am

Re: A Boglehead Guide to Buying Individual Stocks

Post by warowits » Wed May 03, 2017 9:29 pm

oldzey wrote:A Boglehead Guide to Buying Individual Stocks:

Don't!
Read the whole thread to see if I could be the first, but you just beat me.
There are an army of people whose pay checks depend on convincing people to invest in ways that are against their self interest. This forum is the volunteer army that fights back!

User avatar
Taylor Larimore
Advisory Board
Posts: 27512
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Forget about it.

Post by Taylor Larimore » Wed May 03, 2017 9:42 pm

backpacker wrote:I'm convinced that beating the market is incredibly hard, that most investors can't do it, and that I am one of those investors. But suppose that an otherwise financially secure Boglehead were to set out to beat the market by buying individual stocks with a small portion of his portfolio (say 10%). The point would be learning how to value companies rather than actually making money. What books or other resources would be most useful for someone with a serious interest in security analysis?
backpacker:

I spent a large part of my life analyzing company financial statements. First for the IRS and later for the SBA where I analyzed nearly every South Florida SBA loan to decide whether it could be repaid. I also hold an American Bankers Certified Commercial Lender CCL degree. Even with this background, I know that I could never be able to analyze large company financial statements which often hide more than they reveal.

For further evidence, consider the fact that the vast majority of highly trained mutual fund managers who pick stocks can't beat an unmanaged index fund.

Read this and forget about it.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

User avatar
Watty
Posts: 14364
Joined: Wed Oct 10, 2007 3:55 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by Watty » Wed May 03, 2017 10:01 pm

backpacker wrote:I'm convinced that beating the market is incredibly hard, that most investors can't do it, and that I am one of those investors.
One thing to keep in mind is that a mutual fund manager or an investment advisor would be in the investing hall of fame if he or she could beat a comparable index over the long term by even 1% a year.

It is optimistic to think that you can beat the market.

Thinking that you can beat it by a lot over the long run is probably not realistic.

Thnking that you can beat the market without spending a lot of time doing research is not realistic either.

If you have a $100K dollar portfolio and invest $10,000 yourself and an index fund goes up by 10% it would be up $1,000. If your stock picking skills work out and beat that by a healthy 2% you would be up 12% or $1,200 so you would be $200 ahead. If you look at it this way then to me the extra $200 would not be worth all the time or the risk.


If you do decide to invest it individual stocks then commit to yourself to keep detailed and accurate records of your performance to compare it to how you would have done with a comparable index fund. A very commom problem is that people will see that their stocks are up 30% over a few years and be bery happy since they don't realize that an index fund would have been up 40%. This will not be easy to do because of future contributions,taxes, and dividends.

User avatar
backpacker
Posts: 1620
Joined: Mon Sep 22, 2014 2:17 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by backpacker » Wed May 03, 2017 10:15 pm

An interesting perspective on active investing from musings on markets. I appreciate that Damodaran thinks that, probably, he will not out perform the market as a whole, but finds the process intellectually rewarding anyway.
Aswath Damodaran wrote:So, why do I invest actively? First, I am lucky enough to be investing my own money, giving me a client who I understand and know. It is one of the strongest advantages that I have over a portfolio manager who manages other people’s money. Second, I have often described investing as an act of faith, faith in my capacity to value companies and faith that market prices will adjust to that value. I would like to believe that I have that faith, though it is constantly tested by adverse market movements. That said, I am not righteous, expecting to be rewarded for doing my homework or trusting in value. In fact, I have made peace with the possibility that at the end of my investing life, I could look back at the returns that I have made over my active investing lifetime and conclude that I could have done as well or better, investing in index funds. If that happens, I will not view the time that I spend analyzing and picking stocks as wasted since I have gained so much joy from the process. In short, if you don’t like markets and don’t enjoy the process of investing, my advice is that you put your money in index funds and spend your time on things that you truly enjoy doing!

User avatar
stemikger
Posts: 4914
Joined: Thu Apr 08, 2010 5:02 am

Re: Forget about it.

Post by stemikger » Wed May 03, 2017 10:41 pm

Taylor Larimore wrote:
backpacker wrote:I'm convinced that beating the market is incredibly hard, that most investors can't do it, and that I am one of those investors. But suppose that an otherwise financially secure Boglehead were to set out to beat the market by buying individual stocks with a small portion of his portfolio (say 10%). The point would be learning how to value companies rather than actually making money. What books or other resources would be most useful for someone with a serious interest in security analysis?
backpacker:

I spent a large part of my life analyzing company financial statements. First for the IRS and later for the SBA where I analyzed nearly every South Florida SBA loan to decide whether it could be repaid. I also hold an American Bankers Certified Commercial Lender CCL degree. Even with this background, I know that I could never be able to analyze large company financial statements which often hide more than they reveal.

For further evidence, consider the fact that the vast majority of highly trained mutual fund managers who pick stocks can't beat an unmanaged index fund.

Read this and forget about it.

Best wishes.
Taylor
Listen to Taylor
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

User avatar
packer16
Posts: 1044
Joined: Sat Jan 04, 2014 2:28 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by packer16 » Wed May 03, 2017 11:27 pm

One way to do this is to focus on one area of the market/industry that you have in interest in. IMO the idea of diversification is good for your total portfolio but in focusing on individual stocks with a small portion of your portfolio you need to focus as this is where you will find the mispricing and have the time to understand a market segment enough to build a circle of competence. If you diversify, IMO the task gets to be too large pretty quick. Trying to find widespread mispricing in diversified portfolio is not available today but there are a few mispriced securities in a few segments experiencing headwinds now. The key is to estimate the value today and find a large enough discrepancy between price and value to make a purchase. I like to see a 50% difference or a 100% upside before I buy. This leads me to beaten down segments, smaller companies or to some overseas markets that are more difficult to access. You need to be able to assess the current market's perception of value, have a different view and be correct. Not an easy task. I have been doing this since 2000 and more seriously since the mid 00s. It takes time and effort and I value businesses for a day job so there is some overlap there. I have outperformed since 2000 but the margin of outperformance has declined in recent years to about 3%/yr after 2014 vs. 30%/yr before 2014.

Packer
Buy cheap and something good might happen

MPAndy222
Posts: 42
Joined: Thu Mar 31, 2016 6:26 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by MPAndy222 » Wed May 03, 2017 11:46 pm

Boglehead Guide to Buying Individual Stocks: Buy 3601 individual stocks at a time all packaged together... (aka VTSAX) :happy

AlohaJoe
Posts: 3831
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: A Boglehead Guide to Buying Individual Stocks

Post by AlohaJoe » Thu May 04, 2017 12:07 am

The DIY Financial Advisor by Wes Gray

chinto
Posts: 296
Joined: Wed Jan 04, 2017 7:39 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by chinto » Thu May 04, 2017 12:57 am

DaftInvestor wrote:I believe the title of this thread is an oxymoron.
and...
oldzey wrote:A Boglehead Guide to Buying Individual Stocks:

Don't!
Correct me if I am wrong, but I seem to recall a chapter toward the back in the Bogle's Common Sense on Mutual Funds that mentioned building a portfolio of individual stocks with a long term buy and hold strategy. As I recall it was suppose to promote superior tax efficiency. So it seems to me buying individual stocks can be a very Bogle thing to do.

msk
Posts: 921
Joined: Mon Aug 15, 2016 10:40 am

Re: A Boglehead Guide to Buying Individual Stocks

Post by msk » Thu May 04, 2017 1:51 am

After I spent decades trying to stock pick after reading many of the books mentioned above, my conclusions are as follows:

1. Most of those books are way out of date. Major issue with the US market is that P/E ratios are now mostly at an insane level (SP500 at 23?!), not like in the days of Graham post the 1929 crash, hence, currently you do not need much logic or basis for a company's P/E to go from 18 to 26, yet that's a 40% price rise! Similarly for the reverse. So much for logic and analysis.
2. Good news gets an instant response. You simply cannot time your purchases and sells.
3. There are still some tiny, inefficient markets in the Emerging/Nascent Markets arena where "analysis" works. If you happen to be living in one of these obscure markets the advisory books actually work. I made more than 7 figures by stock picking... But in all the major markets I retreated to indexing decades ago. Only significant stock pick was BRK. You do not have to analyse BRK, just pray for Warren Buffett to outlive you.
4. For the US market I found it profitable to use Options on SPY in combination with my BH holdings in SPY. Sell one-year Puts after SP500 drops and one day you end up purchasing your next dollop of SPY at a 5% discount if it drops further, or else you collect your 5% in cash and repeat. Sell covered Calls on your BH SPY holding when you feel the SP500 is at a high stretch (like now?) and you collect both the dividends and the 5% option premium. It's worked for me for several years now. Your mileage may differ.

Overall, for your play money, I would suggest that you learn how to use options, but even there, IMHO it's easier to make money on SPY itself rather than on individual stocks. Options allow you to gear up your hunches yet limit your losses (if done correctly!!!). Good luck.

SGM
Posts: 2743
Joined: Wed Mar 23, 2011 4:46 am

Re: A Boglehead Guide to Buying Individual Stocks

Post by SGM » Thu May 04, 2017 3:59 am

According to the wisdom of Jimmy Jones back in 1960 you have to have good timin'

"Who in the world would've ever known
What Columbus could do
If Queen Isabella hadn't hocked her jewels
In fourteen ninety two
But she had timin'
A tick, a tick, a tick, good timin'
A tock, a tock, a tock, a tock
A timin' is the thing
It's true, good timin' brought me to you"


I did all right in my early investing days with individual stock, but I had good timin'. :wink: I am mostly in low cost index funds these days. You know you have good timin' if you are going to the national BH meeting in October. :beer

foodstamp
Posts: 54
Joined: Sat Nov 23, 2013 6:15 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by foodstamp » Thu May 04, 2017 4:32 am

The stocks you want to buy are:

Amazon
Google
Facebook
Apple

Hold 50% of your portfolio there and 50% in index funds and you will far outperform over the next 20 years.

bondsr4me
Posts: 927
Joined: Fri Oct 18, 2013 7:08 am

Re: A Boglehead Guide to Buying Individual Stocks

Post by bondsr4me » Thu May 04, 2017 4:39 am

SGM wrote:According to the wisdom of Jimmy Jones back in 1960 you have to have good timin'

"Who in the world would've ever known
What Columbus could do
If Queen Isabella hadn't hocked her jewels
In fourteen ninety two
But she had timin'
A tick, a tick, a tick, good timin'
A tock, a tock, a tock, a tock
A timin' is the thing
It's true, good timin' brought me to you"


I did all right in my early investing days with individual stock, but I had good timin'. :wink: I am mostly in low cost index funds these days. You know you have good timin' if you are going to the national BH meeting in October. :beer

I prefer The Beach Boys "Good Timing" :)

Don

User avatar
JoMoney
Posts: 6123
Joined: Tue Jul 23, 2013 5:31 am

Re: A Boglehead Guide to Buying Individual Stocks

Post by JoMoney » Thu May 04, 2017 4:57 am

I would say just start looking at financial statements/SEC filings for a company that interests you. If you run into a question about something specific, ask (or just search the Internet)... there's tons of good explanations out there. Try listening to some earnings conference calls, and maybe even writing a letter or email to the investor relations. I would say read up and listen to all the advice offered by Warren Buffett, but his advice for 99% of us is the same as the Boglehead advice above "Dont!"
Warren Buffett wrote: https://finance.yahoo.com/news/warren-b ... 20066.html People have certain habits, some proclivities that are self-destructive in investing, ... So I would say that I hope our main message is to stay away from trying to trade stocks or do things that are kind of self-destructive, and just let America do the work for ’em.

What are the big mistakes people make? Why do people get it wrong?

Well, the big mistake is thinking they know when to buy and sell stocks ... That there are times to buy ’em and times to sell ’em. There’s times to buy ’em. And eventually maybe, when you decide to start dis-saving when you’re 70 or 80 years of age or something of the sort, at that time you may sell ’em... But basically any attempts to pick the times to buy or sell, I think, are a mistake for 99% of the population, and I think that even attempts to pick individual securities is a mistake for people.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

cjcerny
Posts: 212
Joined: Sat Sep 15, 2007 12:47 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by cjcerny » Thu May 04, 2017 6:42 am

There's a chapter on buying stocks in Millionaire Teacher that I thought was pretty good.

User avatar
brother7
Posts: 157
Joined: Mon Mar 27, 2017 4:48 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by brother7 » Thu May 04, 2017 7:08 am

How to Make Money in Stocks by William J O'Neil

With emphasis on GROWTH and MOMENTUM, O'Neil's basic premise is that EARNINGS GROWTH fuels upward stock price movement.
This is NOT a buy-and-hold strategy.

sschullo
Posts: 2431
Joined: Sun Apr 01, 2007 8:25 am
Location: Rancho Mirage, CA
Contact:

Re: A Boglehead Guide to Buying Individual Stocks

Post by sschullo » Thu May 04, 2017 7:39 am

backpacker wrote:
Toons wrote:What is the point of "Beating the Market"
Is it necessary? :mrgreen:
Of course not! Neither is learning how to paint or running a marathon. The point would be learning how to value companies. Having some (but not too much) money at stake would make the project more interesting I think
IMO, learning to paint or running a marathon (I have run 3 marathons, 2 half marathons, and many 10ks years ago) is more meaningful, and healthy, than trying to value individual companies. The comradery with friends in the training for a marathon is super neat. The way I see it is that the brokerage firms have been valuing individual companies for years with a lot more time, experience, degrees from Ivy Leagues schools, and effort than little ole me can do with Exel. Its a time factor, but even the time spent isn't always going to pay off. I need that 10% of my portfolio for retirement needs not gambling. I spend my time now learning ballroom dancing, revising my book, volunteering at my old employer's 457b and 403b advisory committee with oversees 2.5 billion in assets. Now that's interesting and rewarding for me because I think I have a positive impact on 70,000 employees at my old employer.
Public School K-12 Educators: "Ask NOT what your annuity sales person can do for you, ask what you can do to be a Do-It-Yourselfer (DIY)."

User avatar
goingup
Posts: 3257
Joined: Tue Jan 26, 2010 1:02 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by goingup » Thu May 04, 2017 9:13 am

Why complicate your investing?

I dare say most of us (of a certain age) have owned stocks. To me, it was more trouble deciding when to buy/sell than just buying and holding index funds. You will rarely be compensated for the undiversified risk you take. It was a great relief a few years ago when I finally sold them added the proceeds to TSM.

User avatar
White Coat Investor
Posts: 13537
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: A Boglehead Guide to Buying Individual Stocks

Post by White Coat Investor » Thu May 04, 2017 9:26 am

backpacker wrote:I'm convinced that beating the market is incredibly hard, that most investors can't do it, and that I am one of those investors. But suppose that an otherwise financially secure Boglehead were to set out to beat the market by buying individual stocks with a small portion of his portfolio (say 10%). The point would be learning how to value companies rather than actually making money. What books or other resources would be most useful for someone with a serious interest in security analysis?

I've been thinking that working on basic accounting might be a good place to start, maybe with a book like Accounting for Value. Damodaran's book Investment Valuation also looks good.
Why do you have to buy them to learn how to analyze them again?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

User avatar
backpacker
Posts: 1620
Joined: Mon Sep 22, 2014 2:17 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by backpacker » Thu May 04, 2017 12:47 pm

White Coat Investor wrote:
backpacker wrote:I'm convinced that beating the market is incredibly hard, that most investors can't do it, and that I am one of those investors. But suppose that an otherwise financially secure Boglehead were to set out to beat the market by buying individual stocks with a small portion of his portfolio (say 10%). The point would be learning how to value companies rather than actually making money. What books or other resources would be most useful for someone with a serious interest in security analysis?

I've been thinking that working on basic accounting might be a good place to start, maybe with a book like Accounting for Value. Damodaran's book Investment Valuation also looks good.
Why do you have to buy them to learn how to analyze them again?
Why cook when you can just read cookbooks?

User avatar
backpacker
Posts: 1620
Joined: Mon Sep 22, 2014 2:17 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by backpacker » Thu May 04, 2017 12:52 pm

sschullo wrote:
backpacker wrote:
Toons wrote:What is the point of "Beating the Market"
Is it necessary? :mrgreen:
Of course not! Neither is learning how to paint or running a marathon. The point would be learning how to value companies. Having some (but not too much) money at stake would make the project more interesting I think
IMO, learning to paint or running a marathon (I have run 3 marathons, 2 half marathons, and many 10ks years ago) is more meaningful, and healthy, than trying to value individual companies. The comradery with friends in the training for a marathon is super neat. The way I see it is that the brokerage firms have been valuing individual companies for years with a lot more time, experience, degrees from Ivy Leagues schools, and effort than little ole me can do with Exel. Its a time factor, but even the time spent isn't always going to pay off. I need that 10% of my portfolio for retirement needs not gambling. I spend my time now learning ballroom dancing, revising my book, volunteering at my old employer's 457b and 403b advisory committee with oversees 2.5 billion in assets. Now that's interesting and rewarding for me because I think I have a positive impact on 70,000 employees at my old employer.
You might imagine someone saying the same thing about running. Why train for a marathon? I know that I'm not going to win. Galen Rupp has run for more years, has a professional contract, is a member of the US olympic team, and so on. I'm never going to beat him. But of course, the point of running is that its enjoyable.

User avatar
backpacker
Posts: 1620
Joined: Mon Sep 22, 2014 2:17 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by backpacker » Thu May 04, 2017 12:54 pm

JoMoney wrote:I would say just start looking at financial statements/SEC filings for a company that interests you. If you run into a question about something specific, ask (or just search the Internet)... there's tons of good explanations out there. Try listening to some earnings conference calls, and maybe even writing a letter or email to the investor relations.
This seems like good advice. Better to jump right in, come up with questions, then figure out what to learn along the way. This rather than trying to figure out what to learn ahead of time.

User avatar
backpacker
Posts: 1620
Joined: Mon Sep 22, 2014 2:17 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by backpacker » Thu May 04, 2017 1:03 pm

msk wrote:Most of those books are way out of date. Major issue with the US market is that P/E ratios are now mostly at an insane level (SP500 at 23?!), not like in the days of Graham post the 1929 crash, hence, currently you do not need much logic or basis for a company's P/E to go from 18 to 26, yet that's a 40% price rise! Similarly for the reverse. So much for logic and analysis.
Right. The huge shift in valuations, whether or reasonable or not, shows how dangerous it is to buy individual stocks based on easy rules of thumb (like PE ratios). Those rules of thumb can just stop working. What an investor really wants, it seems to me, is to understand a company as though it were an acquisition target.

User avatar
backpacker
Posts: 1620
Joined: Mon Sep 22, 2014 2:17 pm

Re: A Boglehead Guide to Buying Individual Stocks

Post by backpacker » Thu May 04, 2017 1:07 pm

packer16 wrote:One way to do this is to focus on one area of the market/industry that you have in interest in. IMO the idea of diversification is good for your total portfolio but in focusing on individual stocks with a small portion of your portfolio you need to focus as this is where you will find the mispricing and have the time to understand a market segment enough to build a circle of competence. If you diversify, IMO the task gets to be too large pretty quick.
This is a nice point. Building a diversified portfolio of individual stocks makes no sense and I suspect this is one of the reasons that many active investors fail. No one has 50 good ideas spread across all major industries. Maybe you have one or two good ideas at best in particular segments of the market you especially understand. Better to invest in those ideas and use index funds for diversification.

Post Reply